Mortgages. The devil is in the details

mortgageMy friend Colin, who is my age and has never owed a house says about mortgages, “mort” is french for death and “gage” is like gauge – a measurement tool – mortgages are a way to measure your time till death. Clever.

If Colin had of bought a house when I did, 13 years ago, he not only wouldn’t have paid 156 months rent. He would have nearly doubled the value of his real estate “investment”. For the record, Colin has been paying rent a lot longer than 156 months; he’s been paying it most of his adult life. I don’t think he is so clever.

Or accurate.

Most people don’t make it all the way through a five-year mortgage. Situations change. People move. Five years is a long, long time for many people to stay put.

Which brings me to Investors Group. Remember them? Not your traditional lender. They made a big splash a few months ago offering mortgages at a jaw-droppingly low 1.99%. That worries me. The devil is in the details. The Americans wrecked their economy with dubious mortgage products. In Canada, we are too smart for that. We won’t wreck our economy. But wrecking the lives of borrowers? Sure, that seems to be OK on an individual basis.

 

How do lenders get you when you want to break your mortgage?

 

Penalties

Three monthly payments

You must pay the equivalent of three monthly payments. That will be thousands of dollars. It will hurt.

 

Pay the difference

A sum equal to the difference between the mortgage rate and the current rates over the period of time left on the balance owing.

 

Hidden fees and other tricks

There are lots of ways lenders can squeeze you when you want out. Maybe they won’t let you pay down the mortgage with big payments or extra payments. Maybe you’ll have to pay back any cash incentives you received when you took the loan. There might be a “reinvestment fee”, whatever that is. Lenders are clever. They have a room full of accountants and actuaries working for them. What do you have? A flier and an online calculator.

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